If you have a wifi LAN card / USB adapter, then you can use it as an access point so that other machines can connect to the internet via your machine using Wifi. The process is fairly simple, but requires you to have a compatible set of drivers which allow a wifi lan card to come into “Master” mode.

It didn’t work well for

Linksys WUSB54GC v3 USB adapter. Till Ubuntu 10.04, there were no good drivers for use with hostapd (supporting mac80211 / nl80211). In Ubuntu 10.10, though the drivers were working, but the connection was highly unstable – in fact unusable. The drivers that I tried were rt2800usb (which allowed the adapter to come into Master mode), and rt2870sta which didn’t allow the adapter to come into “Master” mode. It always remained “Auto” or “Managed” (checked via iwconfig). Need to test in 11.04 when it arrives.
What worked pretty well

02:00.0 Ethernet controller: Atheros Communications Inc. AR5001 Wireless Network Adapter (rev 01), using ath5k drivers. hostapd didn’t complain at all and all was smooth. This was in Ubuntu 10.04.
Concept
There’s an application called hostapd which allows converting a wifi adapter into an access point and provide privileges such as WPA authentication and ssid name definition etc. I used it and it worked well.
When a client connects to the access point, apart from authentication it’ll require IP addresses to be assigned. For that a DHCP server is used.
You need to have 2 interfaces, one which accesses the net (e.g. eth0), and other which provides the access point services (e.g. wlan0).
You start the wlan interface, assign it an IP address, start the dhcp server, setup firewall/nat and start hostapd. That’s all to it. Your devices would be able to use the wifi adapter as the access point.

Check what name your adapter got via iwconfig. You can change the name also and make it persistent via /etc/udev/rules.d/70-persistent-net.rules so that it always gets a single type of name. In our example we’re assuming wlan0, but it could be changed. Make necessary changes in your configuration too.

Configure the new interface
ifconfig wlan0 10.10.0.1

The above could also be done in a better way via the /etc/network/interfaces file, but didn’t try it out. In any case if you shutdown hostapd, the network interface (wlan0) loses its address, so need to put a script which assigns it again before hostapd is started. An example could be

iface wlan0 inet static
address 10.10.0.1
netmask 255.255.255.0

Restart the dhcp3-server. It should now be ready to serve addresses and is also bound to the network interface too.

To set a wifi adapter into master mode, try the following. If it doesn’t work and shows an error that it’s not possible or something, fret not – use hostapd as that’ll do that in any case.iwconfig wlan0 mode Master

Network Manager could create issues, though in my test environment – instead of using an ethernet interface, I used two wlan interfaces, one being controlled by Network Manager for internet access, and other for making it an access point.
modprobe -r ath5k / modprobe -r rt2800usb etc. is to be used for unloading the modules.

If you wish to proceed without using authentication so that you can test it easy, then put the following in /etc/hostapd/hostapd.conf